William Nordhaus and Paul Romer win Nobel Prize in economics

Two American economists, William Nordhaus and Paul Romer, received the Nobel Memorial Prize in Economic Sciences for their work on the relationship of climate change and technological innovation to economics, which has profoundly shaped policy around the world.

Nordhaus, a longtime professor of economics at Yale University, and Romer, a former senior vice president of the World Bank and now an economics professor at New York University, were announced Monday as the winners of the $1 million prize by the Royal Swedish Academy of Sciences.

BREAKING NEWS: ⁰The Royal Swedish Academy of Sciences has decided to award the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2018 to William D. Nordhaus and Paul M. Romer. #NobelPrizepic.twitter.com/xUs6iSyI7h

Although the two men worked independently, the academy recognized them together for work that “broadened the scope of economic analysis” through modeling methods — a means of forecasting economic processes based on theory and data — that are used to study long-term change and shape policy practices.

“William D. Nordhaus and Paul M. Romer have designed methods for addressing some of our time’s most basic and pressing questions about how we create long-term sustained and sustainable economic growth,” the academy said in a statement.

Nobel Prize goes to the great Bill Nordhaus -- the founder of modern environmental economics, joint with Paul Romer, who founded the modern innovation-driven approach to understanding economic growth.

Nordhaus, 77, has been a pioneer of environmental economics since the 1970s and was recognized for his work in applying economic analysis to climate change forecasts.

In the mid-1990s, Nordhaus was the first person to create a model that “describes the global interplay between the economy and the climate,” the academy said. The model pulls from chemistry, physics and economics and is used to explore the possible effects of climate policy interventions. Nordhaus also came up with the idea of carbon taxation as a way to cut down on greenhouse gas emissions. Carbon taxation is widespread throughout Europe and is underway in several other regions. The United States — the second largest emitter of greenhouse gas in the world, according to the World Resources Institute — has yet to implement any such taxes.

Born in Albuquerque, Nordhaus studied at Yale as an undergraduate. After earning his doctorate in economics from the Massachusetts Institute of Technology in Cambridge in 1967, he returned to Yale to teach. He did not immediately respond to a request from The Washington Post for comment.

Romer, 62, was recognized for modeling methods for long-term economic growth and for how market conditions can fuel technological innovation, the academy said in the statement. Romer’s most influential work, published in 1990, laid the foundations of “endogenous growth theory,” which shows how technological development is spurred by deliberate policymaking that promotes research, growth and education. His research demonstrated the importance of investing in people and ideas to foster growth, when economists had previously believed that it was impossible to influence the rate of innovation in technology.

Romer’s work “has generated vast amounts of new research into the regulations and policies that encourage new ideas and long-term prosperity,” the academy said. After he had been on the Nobel shortlist for years, NYU wrongly announced that he had won the prize in 2016.

When Romer’s phone rang before 6 a.m. — with the news that he had won the prize — he ignored it, because he thought it was a spam call. He’d thought the prize announcement wasn’t coming until next week.

Born in Denver, Romer earned his undergraduate and doctorate degrees at the University of Chicago. He founded Aplia, an education technology company, in 2001, and he has also taught at the University of California at Berkeley and Stanford University.

“The two picks are brought together by the emphasis on wealth, the true nature of wealth, and how nations and societies fare at the macro level,” economist Tyler Cowen wrote of Nordhaus and Romer.

Romer said he was honored to be named alongside Nordhaus, whose work paved the way for his own by taking a “nonstandard” approach to the big questions of the day. Both Romer and Nordhaus have advanced the conversation around how humanity must care for limited resources — ideas and the environment — and the two agree on the market’s role in guarding them.

“A well-regulated market is an amazing machine for discovering new things,” Romer said. “We’re saying it can be dramatically better if we can just point this amazing capacity for discovery at the right kind of challenge.”

This is the final Nobel Prize to be announced this year. It comes on the heels of a foreboding report from the United Nations panel on climate change, which called for a rapid transformation of the world economy to stave off climate-related crises, which might come as soon as 2040. Much of the report builds on Nordhaus’s work.

In a moment where the erosion of trust in experts — the media, scientists, government — is escalating, Romer said he hopes that both professionals and the public will find a way to seek the truth and make the changes that are in everyone’s best interest.

“We’ve got to use our powers of collective decision-making to steer this innovation machine toward things that we can know that can benefit everybody,” Romer said. “And there’s just no way around the fact that the public has a role here."